1987 (Royce, 1991). By 1993, the return on total capital is projected to reach 23 percent (Royce, 1991).
Economic Factors Affecting Industry Performance
Cosmetics are by and large discretionary products. Thus, retail sales are heavily influenced by both advertising and new product introductions (Standard & Poor's, 1990). Product differentiation through advertising is essential in the successful marketing of cosmetics. Cosmetics, however, are relatively recession proof, and demand tends to remain strong during economic downturns (Royce, 1991).
In the contemporary market, skin care products are strongest, while fragrances are weakest (Standard & Poor's, 1990). Demand for other personal care cosmetics and toiletries remains strong.
The prestige segment of the fragrance market has been hurt by inexpensive imitation fragrances called knockoffs (Standard & Poor's, 1990). Additionally, changes in packaging and distribution processes have created some problems for prestige level cosmetics.
Prestige goods are typically of a higher quality than are other products in the same genre (Kotler, 1989). Even when the actual quality of prestige goods is not higher, there exists a perception of higher quality among those individuals included in the appropriate target market. Higher quality, or the perception thereof, is accompanied by a significantly higher price (Kotler, 1989). In most cases, price differences are greater than quality differences. The automobile industry offers and example of this situation. Few automotive experts challenge the contentions that a Cadillac "Seville" is a higher quality automobile than is the Honda "Civic," or the Mercedes "300" is a higher quality automobile than is the Cadillac "Seville." Most automotive experts, however, will not agree that either the approximately $20,000 retail list price differentials between the Honda "Civic" and the Cadillac "Seville," or between the Cadillac "Seville" a...